Trade options and the Commonwealth

Before the end of this month, Britain’s Prime Minister, Theresa May, will invoke article 50 of the European Treaty, starting a process that will lead to the UK leaving the European Union (EU) in 2019. The precise timing of the announcement is unclear, but what is not in doubt is that it will create uncertainty for every country with which the UK has a trade relationship.

This is because, irrespective of the informal private conversations that British Ministers have had in recent months with all trade and development partners including the Caribbean, the process has so many inter-dependent political and economic parts that no one can guess the trajectory or outcome of negotiations with any certainty. Despite this, nothing practically will change in relation to trade with third nations, until either Britain leaves the EU on a negotiated basis or, should the negotiations with the EU27 fail, it decides to walk away.

In both cases, Britain will then have to re-negotiate or roll over its existing trade arrangements, and establish new schedules and commitments at the World Trade Organisation (WTO). It is a process that a former Director General of the WTO, Pascal Lamy, recently told the BBC that he expects to take seven years. If this is correct, it raises questions about what goods by then the Caribbean will be sending to the UK and what it will require of the United Kingdom as a trade partner, given that the commodities and much else that comes from the Caribbean could be more cost-effectively sourced from nations like Brazil that the UK is likely to want a deeper trade relationship with.

This is not to suggest that trade will not remain of value, or to downplay the importance to the overall relationship of shared values, similar legal systems, language, security support, and the family ties that continue to make the relationship special. Rather, it is to ask why, if duty-free and quota-free access to the whole of Europe since 2000 under the Cotonou Convention, and then the 2008 EU-Cariforum Economic Partnership Agreement (EPA), failed to create a non-commodity surge in exports, what any new trade agreement with the UK might contain that would stimulate Caribbean economic growth?

Speaking recently about this in a related context, at a conference in London of Commonwealth Trade Ministers organised by the Commonwealth Enterprise and Investment Council and the Commonwealth Secretariat, Barbados’ Minister of Trade Donville Inniss pointed out that what the economies of Barbados and other small states in the Caribbean require today is not so much access and support in developing their trade in goods, but for their services.

Telling the conference that Barbados and Caricom as a whole maintains a healthy global surplus with respect to their balance of trade in services, Mr Inniss went on to make clear that in the majority of Caribbean economies, the services sector comprises the bulk of economic activity and that today it is flows of inward investment that are essential to Barbados and the region’s economic well-being.

The Minister’s point is important, as almost all post-Brexit analysis and dialogue is focused on trade in goods, and misses the obvious point that whether the new objective is to find plurilateral or other ways to increase trade, any future UK or Commonwealth approach of relevance to the Caribbean has to embrace services.

To be clear, this means finding ways to enable and encourage the cross border provision of services by professionals such as architects and lawyers; help for creative industries such as animation and music to be able to export without constraints; and support for the development of activities relating to tourism, healthcare, retirement homes and almost everything else that will enable the Caribbean’s small non-oil and gas economies to benefit from a trade relationship with the world’s wealthiest economies.

Unfortunately, the public documents emanating from the first conference of Commonwealth Trade Ministers at which Mr Inniss spoke, seemed not to reflect this.

This was probably because the event was intended to develop a Commonwealth-wide policy response to Brexit, the Trump administration’s protectionist policies, and the opportunities that both may create for enhancing intra-Commonwealth trade.

While the overall initiative is to be welcomed, it is not clear how it might in future relate, other than in general terms, to the Caribbean.

While Australia, India and Canada, for example, have the ability to trade advanced manufactured goods and agricultural produce across the Common-wealth, and there is opportunity for the establishment of some new form of Commonwealth post-Brexit free trade relationship with member nations including Britain, Caricom lacks the scale, logistics, proximity and access to finance to be able to benefit significantly from the relatively few goods it produces.

For this reason, a more realistic approach might be the one Shanker Singham from the Legatum Institute suggested to the conference in relation to Brexit: the UK should advance plurilaterally with a like-minded group of Commonwealth countries by addressing non-tariff barriers and establishing what he described as an “open accession agreement that others can join”.

There is still a reluctance to recognise that the value and nature of Caribbean trade with the world has changed, or that as wealthier nations move to robotics, re-shore their supply chains, and reduce constraints on agricultural production, their citizens’ wealth will grow and there will be an ever-increasing demand for the types of services the region is able to provide.

This suggests, a more intense regional focus on every aspect of services development, a rapid improvement in education systems to guarantee that the region has the long-term ability to sustain the sector, and the reorientation of agriculture to feed the region’s population and visitors.

The Commonwealth remains an important entity, but when it comes to the Caribbean the construction of any new intra-Commonwealth approach cannot just be about trade in goods. Rather it requires the support of the body’s wealthier members to determine, with the Caribbean and the growing number of service sector organisations in similarly structured economies, a 21st century approach that supports their interest in accessing the opportunities that exist in the global economy.